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Lately, I've been considering the role of the state. I'd like to share with you a scenario I've been examining:

Let's say that CountryA starts subsidizes 55% of the cost of producing cars, therefore car manufacturers in CountryA can afford to cut prices with up to 50%

Let us also supose, for clarity, that CountryA only exports cars to CountryB. CountryB is also a manufacturers of cars.

There are 2 likely scenarios:

1) According to laissez-faire economics, the state of CountryB has no business intervening in import/export matters, therefore it will let the market realign itself:

Car manufacturers in CountryB are unable to compete with the much cheaper products imported from CountryA, therefore they declare bankrupcy, their entire staff is fired and all their industrial equipment is sold abroad very cheaply, due to the influx of such equipment on the market.

Basically, due to market condition, all car production shifts to CountryA, while the workers from CountryB retrain themselves for new jobs, emigrate or turn to crime.

2) The second choice is for the state of CountryB to have a protectionist/mixed economy reaction and increase import tarrifs to match, or excede, the price drop generate by CountryA's subsidizing.

In this case, the scenario goes a little differently:

The car manufacturing industry of CountryB will be protected and stable, but citizens of CountryB won't benefit from cheaper cars they would have otherwise got.

CountryA's answer is to either drop the subsidizing, because it is unprofitable if sales cannot be boosted by exports, or match the tarrifs of CountryB and start a trade war.

Considering this scenario, I'm not interested in the behaviour of CountryA's government, whose initial subsidies generated this situation. I'm interested in CountryB state's best response, considering its role.

If the citizens of CountryB are agreeing with the Objectivist theory of the State, then they'll only require the state to protect their individual rights and not intervene in matters of economics.

In this case, the results are: cheaper cars, on short term, at least until the indigenous industry goes bankrupt, a few thousand people unemployed, a statistical rise in crime and social upheaval and a major loss of capital in that country due to the selling of industrial equipment at low prices.

If the citizens of CountryB are adhering to the mixed economy principles, according to which the role of the state is to provide a safety net againt social upheaval and extrem variation in living condition between individual and in time, then the results are as follows:

The citizens of CountryB won't get cheapers cars. The car industry of CountryB won't go bankrupt. The situation is basically the same.

We should also consider that the use of tarrifs doesn't imply any bugetary issues, since the government of CountryB doesn't have to divert funds to impose these tarrifs, therefore no tax payer money is used.

The only thing which the citizens of CountryB are loosing is the opportunity to get cheaper cars, at least while the gov. of CountryA keeps its subsidies.

Free market theory supports the idea that companies should fight it out, on the market, and let customers, prices and individual rights and decision generate the outcome. Unfortunatelly, when the state supports one particular company or groups of companies, the other companies are unlikely to survive.

In an Objectivist state, the gov. won't be able to offer special treatment, due to constitutional restraits (if only they'd work), but how are citizens of capitalist state deal with foreign states supporting foreign businesses?

Should the state be able to impose tarrifs and subsidies, to counter simillar foreign measures or even use them as bargaining tools?

Would you give up some of your individual rights so that your local car industry doesn't go bankrupt, living much of your community in turmoil? In other words, would you pay for social stability? Is that a value for you?

Is it in one's best interest, from an individualisting perspective, to adhere to a state where your taxes buy you not only protection for basic individual rights, but also a minimal safety net, so you can pursuit different interests in life without the constanty wory that the arbitrary decision of a collectivist state can ruin you?

I haven't reached a conclusion on this issue, but I'm starting to lean towards minimal state intervention, only to prevent major social catastrophies, such as the collapse of entire regions or industries.

I do understand that this might imply the violation of the rights of the other citizens, but this is only true if they don't agree with the policy of mixed economy.

Much in the same way we use the state for collective millitary protection, could we profit from a state which is also concerned with collective economical protection?

Is there a way for the private sector to address the issue of trade wars, without state intervention, and still follow market behaviour?

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The best thing the private sector can do is do what Richard Cobden did and organize a campaign against protectionism.

Cobden succeeded in getting the hyperprotectionist corn law repealed in middle of the 19th century in Britain.

All forms of protectionism are taxation at root and that should be the focus of any campaign.

I did get Cobden in my history classes at school (1988-91) and (1989 spring-summer term in his case) but it's so long ago that I can't remember what exactly it entailed. I do remember that I enjoyed that bit of the course though.

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They way I see it, the citizens of Country B have to decide which is more important: short term lower prices, or the long term lower prices of free market competition. Subsidized business must fail eventually, when the public coffers run out.

So, the citizens of Country B, rationally, must boycott (or some other market action) the automobile products of Country A, in order to protect their own industry, and to ensure lower prices over the long term. They must vote with their pocketbook, but with a larger context than the end-of-month balance.

Gabriel, in your scenario, the state usurps control of this market action, implicitly saying that consumers don't know how to act in their own best interest.

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cheaper cars, on short term, at least until the indigenous industry goes bankrupt, a few thousand people unemployed, a statistical rise in crime and social upheaval and a major loss of capital in that country due to the selling of industrial equipment at low prices.
I dont't think that is what will happen. I think that people from that country will continue to buy cars cheaper from the other country and will turn themselves toward other kind of production. With that new kind of product (that the other country can't afford to have because they concentrate on cars) the capitalist country will bwe able to sell the new products (may be those new products will be something replacing the car with something even more efficient) and that way there will be no crime and only productivity.

Sorry for the english for I am from Quebec :)

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In an Objectivist state, the gov. won't be able to offer special treatment, due to constitutional restraits (if only they'd work), but how are citizens of capitalist state deal with foreign states supporting foreign businesses?

I think an Objectivist government could offer special treatment, based on the recognition and protection of human rights. If we have determined that a foreign company is receiving stolen funds (that were originally stolen from people in the form of a government tax and then given to the company as a subsidy), then our government should recognize this fact, uphold the rights of the victims, and possibly do a few things: 1) encourage a world-wide boycott against this company 2) do what we can to stop this company's products from entering our country at border control centers and 3) possibly confiscate the company's products at the border and make an effort to distribute them to the victims, some of whom may have already migrated to this country. If that is not possible, then sell the confiscated products at auction and use the money for government projects.

Placing a tariff on such subsidized goods would only show that we don't mind that these companies make a profit off of stolen money, as long as our government gets a share of the booty.

Confiscating the goods would show that we are serious about recognizing and protecting human rights, whether these humans are in our country or suffering under another. Perhaps, once we are bold and strong enough, we might use the money from these confiscations to build up a rescue force that focuses on assisting foreigners in fleeing oppressive governments. This would have to be in our selfish interest, of course, and not done out of some altruistic concern.

How to deal with especially bad governments themselves? Well, we start by condemning them and encouraging a world-wide boycott against them.

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I think an Objectivist government could offer special treatment, based on the recognition and protection of human rights. If we have determined that a foreign company is receiving stolen funds (that were originally stolen from people in the form of a government tax and then given to the company as a subsidy), then our government should recognize this fact, uphold the rights of the victims, and possibly do a few things: 1) encourage a world-wide boycott against this company 2) do what we can to stop this company's products from entering our country at border control centers and 3) possibly confiscate the company's products at the border and make an effort to distribute them to the victims, some of whom may have already migrated to this country. If that is not possible, then sell the confiscated products at auction and use the money for government projects.

None of these actions are proper functions of a government.

Confiscating the goods would show that we are serious about recognizing and protecting human rights, whether these humans are in our country or suffering under another.

The proper function of a government is to protect the individual rights of its citizens, not "protecting human rights" anywhere in the world.

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how are citizens of capitalist state deal with foreign states supporting foreign businesses?
I don't see why the foreign business, say, CompanyA should be treated any differently than any other business, foreign or domestic. When citizenA and citizenB engage in a free trade, each should be concerned only with the value he expects to gain from it. Therefore, citizenB need not worry about why the price of the car is so low, unless he suspects that the future of CompanyA is uncertain due to its reliance on government subsidy.

When you talk about maintaining "social stability", what does this entail? Because countryB is laissez-faire, it already protects individual rights to the fullest extent possible. I would question what exactly the term "social stability" would mean beyond the basic protections already afforded, other than the sacrificing of some members of society for the "stability" of others. The newly unemployed car makers of countryB have no justification for crime, nor are they able to extort anything from anyone else, say, in unemployment benefits.

Also, the situation presented masks the fact that in a true laissez-faire capitalist country, the newly unemployed workers and capital would be reallocated very efficiently. And with the new money that the citizens of countryB have from the savings from cheap cars, more consumer money can now be redirected at existing or new industries, creating new jobs.

Imposing tariffs or any other economic mechanism by the govt of countryB would simply be a case of the rights of individuals being curbed in favor of the job security of the car makers. Nothing can change that fact.

I do understand that this might imply the violation of the rights of the other citizens, but this is only true if they don't agree with the policy of mixed economy.

Surely you aren't implying that violating the basic rights of citizens who don't agree with faulty government policy is OK?

a major loss of capital in that country due to the selling of industrial equipment at low prices.
I don't understand why the people of countryB would lose capital; in free exchanges, neither party loses value.

Much in the same way we use the state for collective millitary protection, could we profit from a state which is also concerned with collective economical protection?

Protection involves the initiation of force. A government monopoly on initiation of physical force is only necessary to secure individual rights. "Economical protection" is a contradiction in terms; it implies using force to secure freedom. Economic exchanges, however, are free by their very nature.

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This is another example of jumping "mid-stream" into a problem and not approaching it from the standpoint of fundamental principles- and then as a result trying to sort through multiple levels of injustice and trying to decide who should or shouldn't be penalized.

If a country chooses to subsidize its manufacturers thereby making its products more price competitive, why shouldn't buyers in other countries take advantage of those lower prices? If you are concerned about the injustice to unsubsidized manufacturers who will lose business, what about the citizens of the country which is doing the subsidizing? They are also suffering an injustice and if you refuse to purchase the lower priced goods (which would clearly be a sacrifice on your part), then they would suffer. It's a tangle of injustice which you are not obliged to untangle.

I would consider subsidized imported products a gift provided by a foolish country which doesn't grasp the principles of capitalism. The savings they are providing the importing countries can then be used to fund expenditures in other areas.

Apart from that, subsidizing manufacturers doesn't work long term. It merely promotes inefficiency and in the long term it makes them less, not more, competitive.

In the 19th Cent., England adopted an across the board free trade policy and they didn't concern themselves with whether other countries reciprocated. The result was an unparalled economic boom which made England the richest country on earth.

In regard to this issue, I highly recommend an article by Harry Binswanger entitled "'Buy American' is Un-American" which appeared in The Objectivist Forum.

Fred Weiss

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AN article on Richard Cobden, anti-corn law campaigner:

http://thescotsman.scotsman.com/opinion.cfm?id=629142004

We have squandered the legacy of the father of free trade

PETER CLARKE

THE Euro elections have put everyone to sleep. Missing is any kind of debate, far less rational argument, about how a successful free trade area, which made Europe prosperous and peaceful, has been subverted into a bureaucratic machine for corporate subsidy and personal pilfering. Sad, because today is the 200th birthday of the man who invented free trade.

"The Corn Laws take from the poorest of the poor to give to the richest of the rich," wrote Richard Cobden. The prime minister, Sir Robert Peel, crumpled in the Commons. He turned to a colleague to say: "You may answer this, for I cannot." By the sheer power of argument, temperate but passionate, courteous but deadly, Cobden broke the power of the landowners and opened up the British markets to free trade. Which also makes him the father of globalisation.

It is Cobden’s 200th birthday today. I know of only one commemorative feast, at his surviving newsletter, The Economist. I am perplexed that the great free trader and leading advocate of liberalism has almost sunk from national memory. He ought to be a hero to diverse groups. He devised the Anglo-French Treaty of 1860, which has a better claim as the origin of the EU than the Schuman Plan of 1950.

This noble man is more than a whiskered, respectable Victorian. He offers a model to those rascals seeking election to the parliament that perambulates between Strasbourg and Brussels who invite our interest this week. I’m clear he would urge them to abandon their futile lives and demolish the malignancy of the Commission. If the Corn Laws were evil, what adjective fits the Common Agricultural Policy? The CAP is an iniquity whose poison is spread over the third world.

Richard Cobden was born the fourth child of 11 in rural poverty. He lifted himself from a penury that would have crushed a lesser soul. He educated himself by reading and travelling. He became a calico trader and generated enough security to begin the first great political pressure group - the League. Within seven years of its creation he had broken the Conservative Party and its protectionist principle.

His assault on tariff barriers created the prosperity that flowered after 1846. Even today, most politicians will argue that free trade must be reciprocal. The great Cobdenite trick was to remove barriers unilaterally.

I can hear Cobden’s ghost raging against the Iraq adventure. He loathed all of Lord Palmerston’s military outings. The notion that free trade was a cause for pacifists leaves Cobden difficult to place. I see him as a leftie - a radical leftie. Yet his policy ideas seem distant from the control freakery of our modern lefties. He saw his task as overturning the feudal powers of pre-commercial life. Free trade was egalitarian. That was as important as the affluence it generated.

His tussle to break the CAP of his day left Cobden penniless and in broken health. A national subscription was opened, with millions throwing in their farthings and pennies. Can we now imagine such a gesture of affection or regard for any of our politicos? Commemorative china and other memorabilia were prized as more than mere souvenir junk but as badges of enlightenment.

But for Cobden’s interventions, Britain would have supported the Confederates in the American Civil War.

When Cobden expired in 1866, the national grief was such that we can barely comprehend. We are not used to our public figures being heroes. Gladstone’s eulogy was so generous that Mrs Cobden expressed astonishment. She had supposed her husband to be a kindly man. "I had not realised I was married to a national saviour and paladin," she confessed.

In some senses, the arguments for free trade are triumphant. In another sense we see them ignored. No party looking for our Euro-votes argues for free trade. They offer permutations of protectionism. The EU is the spirit of black-hearted mercantalism born again. What we need is a contemporary Richard Cobden.

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The best thing the private sector can do is do what Richard Cobden did and organize a campaign against protectionism.

Cobden succeeded in getting the hyperprotectionist corn law repealed in middle of the 19th century in Britain.

All forms of protectionism are taxation at root and that should be the focus of any campaign.

I did get Cobden in my history classes at school (1988-91) and (1989 spring-summer term in his case) but it's so long ago that I can't remember what exactly it entailed. I do remember that I enjoyed that bit of the course though.

He must have been getting on a bit at the time. Could the people at the back hear him ok?

Brent

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To accept stolen goods or not to accept stolen goods. That is the question.

The Automobile-comsuming community of Country A is put in the same situation of anyone with access to free music off the interenet today. The same situation as anyone who has the option of getting something cheaper because it was ripped off.

This whole issue isn't about much else.

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The proper function of a government is to protect the individual rights of its citizens, not "protecting human rights" anywhere in the world.

In the 1964 Playboy interview, Ayn Rand agreed that any free nation had the moral right, though not a duty, to invade "slave pens", like Soviet Russia and Cuba. She didn't think this was necessary, however. Instead, she advocated "a blockade of Cuba and an economic boycott of Soviet Russia."

So, apparently, according to Ayn Rand, the proper function of government does include recognizing and, under certain circumstances, protecting the rights of people in foreign dictatorships. It is not our duty to do so, however, as altruism would like us to believe.

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In the 1964 Playboy interview, Ayn Rand agreed that any free nation had the moral right, though not a duty, to invade "slave pens", like Soviet Russia and Cuba. She didn't think this was necessary, however. Instead, she advocated "a blockade of Cuba and an economic boycott of Soviet Russia."

So, apparently, according to Ayn Rand, the proper function of government does include recognizing and, under certain circumstances, protecting the rights of people in foreign dictatorships.

I think you are conflating the right to act, with purpose. The purpose of a proper government -- the only moral justification for its existence -- is the protection of the individual rights of its citizens. Every valid function of the government must be traceable back to that purpose, the purpose for which it was formed.

If the rights of a citizen have, in fact, been violated, the government cannot say "We will not protect your rights because we feel it is not in our self interest to do so." The government must protect the rights of its citizens because that is its proper function, the reason for which the government was formed in the first place. But in regard to citizens of another country, there is no such requirement because "protecting human rights" anywhere in the world is not the proper function of our government.

We do have the right to invade "slave pens," as Ayn Rand put it, but actually doing so is a proper function only if it is traceable back to the protection of the rights of our own citizens. We have the right to act, but we will only do so based on the purpose and proper function of the government -- protecting the rights of its citizens, not "protecting human rights" anywhere else in the world.

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the workers from CountryB retrain themselves for new jobs, emigrate or turn to crime. [...] the indigenous industry goes bankrupt, a few thousand people unemployed, a statistical rise in crime and social upheaval [...] turmoil [...]

Gabriel, sorry to put this so bluntly, but we are talking about a capitalist country, not Romania.

A couple of months ago, when I was in Germany, I met a Russian guy in the hotel who told me that there was no point in trying to make money because "it would be stolen anyway." I was very surprised to hear a person think that way. I tried to encourage him by mentioning places where one's wealth was in safety--the United States, Switzerland, etc.--but he kept insisting that "it's the same everywhere." He was so thoroughly steeped in the doom and gloom of his home country that he simply could not imagine circumstances being better elsewhere. (Not even while he was in Western Europe, with the better circumstances poking out his eyes!)

You guys need to snap out of this vicious cycle of pessimism. Things CAN be better. If Country B is a truly capitalist nation, the car factories will be retooled to make trucks, helicopters, or space shuttles; a wealthy speculant will buy up millions of the subsidized cars and sell them at an "obscene" profit, making the socialists in Country A rue the day they thought of the subsidy; and the rest of the nation will just enjoy driving around in their cars.

A socialist state operating next to a real capitalist country will disintegrate faster than a snowflake in hell. The evil are powerless when the good mean business.

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